Why do never-investor always say "the market took x amount of years to recover"?

Grumpy_chap

Why do never-investors always say "the market took x amount of years to recover"?

Why are some people "glass half empty"?

Why are some people pessimists?

The answer to all three is quite likely the same.

dunstonh

It physically pains me to see the argument of "in 1929 it took 25 years to recover. In 2000 it took 7 years to recover, then crashed again and took another 6 years to recover etc etc.

That is in nominal terms.  It was much less in real terms.

Baldytyke88

I put £500 into my 25 yr old daughters SIPP and bought Norcros PLC. Not because it was a dead cert, but because it will teach her lessons, the share is down at the moment, but paying dividends. It was only bought last year.

It will hopefully teach her about investing for the long term and that tax relief is important.

phillw

SneakySpectator said:
I treat my monthly investing contribution like a bill, like a direct debit the same as council tax or water or energy. It's just something that I pay every month no matter what. 

 

If you like just putting money into something that you never know whether you will see a return, then you can set up a standing order and transfer the money to me. You can think of it like a utility bill if you want.

You can make money out of the greater fool theory, but you never know if you are the greater fool.

Roger175

SneakySpectator said:

Roger175 said:

The other thing to consider is dividend payments. I have a high yield portfolio of individual shares which I've built up over 20 years or so. I keep a good record of everything and some of the results are enlightening. Some of my holdings show they are down on purchase price but have returned very hansom returns in terms of dividends. I have some shares which have lost 20% on the initial capital value yet have grossed over 200% return in dividends. Someone looking at the index only position would say, I had just lost 20% without seeing the full picture.

As an example, if I bought £1,000 in a company yielding 5% div, and reinvested the dividend, after 20 years I would now have £2,700, even with no capital growth. Your ignoramus looking at the FTSE100 would argue I've not made anything. 

I'm guessing you're an "older gentleman" if you have 20 years of investing behind you but once I get to the appropriate age I'll probably shift my VWRP growth fund over to a dividend fund because like you say, having that regular source of income without having to actually sell any of your original investment is probably wise to protect the capital you've built up over time. 

But much like my VWRP fund which is a passive tracker, I'll use a dividend tracker instead of picking individual stocks.

61years old. I have been investing for over 30 years, but took control of things myself in my early 30's following a bad experience with my then IFA. I found some really good info on high yield investing on line which appealed to me because I could fully understand it and control every decision, unlike funds which back then were managed funds and lacked transparency. I also invest in funds BTW.  

The point I was making is that dividends add another dimension to investing which isn't immediately apparent and one of the reasons why accumulation funds grow faster than the underlying index. I'm agreeing with your fundamental point, just explaining why it's pointless to just look at the basic index

SneakySpectator

Baldytyke88 said:

I put £500 into my 25 yr old daughters SIPP and bought Norcros PLC. Not because it was a dead cert, but because it will teach her lessons, the share is down at the moment, but paying dividends. It was only bought last year.

It will hopefully teach her about investing for the long term and that tax relief is important.

Not to be critical of your decision but I'm not sure putting all of "her" money into 1 stock is a good first impression of investing. 

Why not teach her about index funds, diversification, spreading your risk, different countries and sectors etc? Even if that stock went up 500% in 5 years it would still be a "bad" education lesson because this will only reinforce her belief that picking individual stocks is better than global index funds.

Just my thoughts anyway.

SneakySpectator

phillw said:

SneakySpectator said:
I treat my monthly investing contribution like a bill, like a direct debit the same as council tax or water or energy. It's just something that I pay every month no matter what. 

 

If you like just putting money into something that you never know whether you will see a return, then you can set up a standing order and transfer the money to me. You can think of it like a utility bill if you like.

The difference is my monthly investment should generate on average 9% per year before inflation. Write up a contract where you'll give me 9% per year and I'll happily send you my money each month.

Didn't think so

Hoenir

SneakySpectator said:

TheBanker said:

SneakySpectator said:

It physically pains me to see the argument of "in 1929 it took 25 years to recover. In 2000 it took 7 years to recover, then crashed again and took another 6 years to recover etc etc.

The act like every investor only buys once with their entire life savings? Seriously who takes £100,000 and just buys once and doesn't do anything for the next 25 years? No investor I've ever known that's for sure. 

So why do all these never-investors use this as some kind of argument to back up why they don't invest? Almost every sensible retail investor I've ever spoken to buys every month, or at least every month they can afford to buy. 

It's called dollar cost averaging, or pound cost averaging for us Brits. 

I think in their mind they think investing is about buying one time and selling one time. So they place so much importance on getting the timing right, that they never actually end up buying at all?

I guess some people will just invest a one-off sum, e.g. an inheritence. Even if they then add a monthly investment, the one-off is likely to represent the lion's share of their portfolio. 

A lot of people confuse Trading and Investing. The current crop of apps has not helped - in the olden days when you had to phone a stockbroker the distinction was much clearer. 

Oh cmon the amount of people making those arguments are not inherent of their grandpappy's life savings. They're youngsters who think investing is taking £10,000 you've got in your 2.5% interest savings account and dumping it in an individual stock and waiting 25 years and hoping you magically have £500,000 at the end of it. 

I'm not saying that's the majority on these forum, but certainly on Reddit. I treat my monthly investing contribution like a bill, like a direct debit the same as council tax or water or energy. It's just something that I pay every month no matter what. 

 

Why waste your time on Reddit. There's a library of well written books if you wish to educate yourself on financial history. Gain a fuller understanding of what actually triggered events. Often it's what's beneath the surface that's subsequently revealed that causes the long term damage. The world is a murky place where many are playing poker.  Sometimes it's just plainly obvious due to a number of metrics that some company shares are overvalued. Medium term future returns are therefore constrained. Just basic maths. Law of gravity. 

eskbanker

SneakySpectator said:

I'm not saying that's the majority on these forum, but certainly on Reddit.

SneakySpectator said:

400ixl said:

Some people still claim the world is flat.

Many people are not financially educated and hold onto headlines that they have heard or been told as if they are the gospel truth and only outcome.

Why are you concerning yourself with people that you know are clearly not financially educated?

Well I enjoy Reddit and /r/stocks, /r/stockmarket and /r/investing has some great content. Mostly memes and people raging haha.

If you want to rail against ignorant Reddit posters, why not do so over there rather than on here?

gm0

The question on market recovery is much more relevant to a deaccumulator than in accumulation. Purely because sequence of return (with the same long term average) matters so much more to the one and less so to the other.

Some people view this conceptually - with sequence volatility as a wealth transfer from deaccumulators as forced sellers in volatility dips to savers in the same dips who get to buy those units "cheap" vs the long term trend.

As OP says many people don't grasp the pound cost averaging concept intuitively.  Revaluation cycles over 10-20 years and volatility dips are your friend in accumulation viewed over a long term plan

Yet most people rely on both capital depletion and the returns along the way (total - dividends and capital growth) to "fund" the ~40 payment years of retirement and its inflation uplifts.   In deaccumulation.

So the sequence of return does matter to the seller.  By implication "time to recover" also - does mattter to those people in a very real sense. As the value of that capital is baked into their deaccumulation income plan. 

Their investment portfolio, access method, what is sold when to fund income - needs to take account of sequence. 

Something the monthly saver can happily ignore. 

It's easy to model. Take the same long term equity average return (or preferred mix of bond/equity returns).
Fix income at 4% say (for a DC retirement set to "necessary" income). Create a few of sequences of returns which generate that.  One with dip first and a spike at the back end, and one flat and one with spike and dip front to back. 

Then apply the sales of capital units and taking returns to support the income. 

They are not the same. The dip folllowed by spike runs out first.  Then flat.  Then spike first.  All had the same long term average returns.

Bad sequence person - sells too much capital before the recovery arrives to sustain income

You can't pick your age (but can adjust retirement date a little) - so your cohort and place on the sequence is not in your full control

What you can do is consider how to sustain income, handle "temporary" dips.  And what level of long term return "potential" to sacrifice in the name of buffering income with less volatile, less correlated to equities/growth assets in the overall portfolio.

These risk management and income sustaining approachs are often commentated on as deficient (on an averaged out view) across a simulation of past or a random range (montecarlo).  Because there are "better choices" (long terrm return potential - provided you are not the unlucky minority). 

The difficulty that arises is that you only get "one" personal squence.  Not the average.  And if you happen to get one of the bad ones - then the fact the "average" outcome was OK is of precisely zero comfort to you whatsoever.

The problem is wordplay.  TIme to recover matters (context capital depletion and sequence).  It doesn't matter to all investors.  It matters to some.  And DC drawdown pensioners are still investors - sustaining their income from invested capital for 40 years.  So linking "investing" to "accumulation only" does not solve this taxonomic problem by redefinition.